The question of whether 18% GST applicable on maintenance charges collected by builders before the housing society is formally formed has been a subject of frequent confusion among homebuyers and residents. Let’s break it down in the context of the applicable GST laws, circulars, and court rulings.
Applicability of GST on Maintenance Charges by Builder
When a housing project is under construction or recently completed, and the builder or developer continues to manage the property and collect maintenance charges, these collections are generally treated as supply of services under the GST Act.
According to GST law, when the builder collects maintenance charges before the society is formed, these are not considered voluntary contributions but a consideration for services rendered. Therefore, the builder is liable to levy and collect 18% GST on the maintenance amount.
This is particularly applicable when:
- The monthly maintenance charges exceed ₹7,500 per member.
- The housing society or association (if already formed) has an annual turnover exceeding ₹20 lakh (although this threshold is not relevant if the builder is collecting directly).
- The builder is registered under GST and is providing common area services like housekeeping, security, lift maintenance, etc., and invoices the residents for such services.
What Happens After Society Is Formed?
Once the Residents Welfare Association (RWA) or Cooperative Housing Society is formed and takes over the maintenance responsibility, GST is not levied if:
- The monthly contribution per member is ₹7,500 or less, and
- The total turnover of the RWA is below ₹20 lakh annually.
If these limits are exceeded, then the RWA must register under GST and charge 18% GST on the maintenance amount collected from members.
Legal Clarity and Government Circulars
The CBIC (Central Board of Indirect Taxes and Customs) has issued multiple circulars clarifying the applicability of GST on maintenance charges. Builders, when acting as service providers, are liable to collect and remit GST at 18%, and they usually include this in the breakup of charges payable by flat owners before handing over possession.
Additionally, courts have upheld that until the residents’ society is legally formed, the builder’s role as a service provider makes the maintenance collection taxable.
Impact on Homebuyers
For homebuyers, this means:
- Be prepared to pay 18% GST on maintenance bills issued by the builder.
- Ensure that the builder issues GST-compliant invoices.
- Once the society is formed, residents can decide the structure and compliance based on their contributions and turnover.
Conclusion
Yes, 18% GST Applicable on Maintenance Charges when the builder is managing the housing society and collecting charges for services rendered. The liability may reduce or become exempt once the society is formed, provided it meets the exemption criteria under GST.
